The Bottom Line / A message from New Zealand
On Wednesday, the first day of the Caesarea Conference, it was discovered that former finance minister of New Zealand, Roger Douglas, was visiting the country for two days.
On Wednesday, the first day of the Caesarea Conference, it was discovered that former finance minister of New Zealand, Roger Douglas, was visiting the country for two days. Douglas was instrumental in leading a series of revolutionary economic reforms in that far-off island in the mid-1980s.
Finance Minister Benjamin Netanyahu seized the opportunity and invited the media to meet with Douglas to enlighten them a little. Douglas told how New Zealand in the 1980s was a sick country in economic terms, with a subsidized, closed economy managed by the central government. Douglas waged an unexpected revolution, because at the time, power was in the hands of a labor government, which until then had increased its interference, taxes and regulation. He canceled agricultural subsidies, so that today New Zealand is the only state in the world with zero subsidies in agriculture. He introduced competition to marine transport, ports, trains and postal services, reduced and canceled trade barriers and protection of local industries, privatized banks and government companies, gave the central bank monetary independence, cut government workers from 88,000 to 32,000, and slashed government expenditure and marginal tax from 66 percent to 33 percent to individuals and corporations. The result was more economic freedom, lower prices, increased consumption and faster growth. New Zealand today is a developed county with a GDP of $21,000 per head (compared to our own $17,000).
Douglas explained that the vast layoffs in the public sector were justified, since these workers had enjoyed "excess rights" at the expense of the general public. Far-flung farmers were paying too much for transport, industrialists were paying too much for loading and unloading at the ports, and workers were paying too much income tax. Netanyahu lapped it all up, adopted it immediately, and took to speaking at the conference about the New Zealand model and the "excess rights" of our own workers at the Israel Electric Corp. and the ports. "We cannot carry on with strongholds of excess rights," he concluded.
But apparently the New Zealand model was not only mired in success. Douglas had one central failure: He failed to address industrial relations; he failed to cancel collective work agreements that stifled flexible management; he didn't cancel the agreements that linked all sectors, or the collective agreements that fixed wages with no connection to the actual situation. As a result, unemployment grew in 1990 to 11 percent, and the Labor party lost the election.
And Douglas' own political fate was not so rosy. Despite the important reforms he led, he was considered an enemy of the workers and had no chance of being chosen again in the party. He retired bitter from politics. His story slightly reminds us of Haim Ramon, who rescued the Histadrut from its loss-making activities and split the health service from politics, but paid a heavy price within the Labor Party.